Why Northern Ireland needs a Living Wage
Fifteen years ago the New Labour government introduced the National Minimum Wage (NMW). Critics vehemently argued that it would impose excessive costs on employers, cause firms to fail, and create unemployment. Today it is accepted that businesses adapted and the dire consequences predicted failed to materialise.
But while the NMW has significantly reduced extreme low pay, a full-time salary is still no guarantee of a decent income. The Living Wage is an estimate of the wage that would provide a full-time worker with a basic, but adequate, standard of living. It currently stands at £7.65 per hour, (compared to the NMW of £6.31 for people over 20 years old) a difference of £1.34. In 2012 almost one quarter (23%) of employees in Northern Ireland were paid below the Living Wage.
So what would be the impact of introducing a Living Wage across Northern Ireland? NICVA believed the living wage is desirable but we wanted to find out if it was doable. So we commissioned Oxford Economics to model the economic effects, using data from 2012, the most recent year for which all the necessary data is available.
In their most likely scenario, the Living Wage would have added £209m (less than one per cent) to the Northern Ireland wage bill. This would have led to a loss of 1,200 jobs, but boosted consumption (of £124m) would have created 2,400 jobs – a net gain of 1,200. In addition, reduced need for in-work social security payments and increased taxation revenue would have improved the public finances by £83m. There is also evidence that higher wages would increase productivity, which has been historically low in Northern Ireland. On the negative side some firms would pass higher costs on to customers, creating inflation. But the bottom line is that the Living Wage could be implemented without serious detriment to the economy.
The economic case for a Living Wage is strong and indeed the Prime Minister David Cameron, who opposed the introduction of the NMW, saying it would “send unemployment straight back up”, now describes the Living Wage as “an idea whose time has come”.
However, thought needs to be given to how it can be achieved.
Let’s be clear though, action is required; the idea that employers will voluntarily pay their staff a Living Wage when economic conditions recover is simply not credible – if that was the case there would have been no need for a statutory NMW.
The Living Wage campaign in London has targeted specific employers who are sufficiently profitable to pay their staff a Living Wage, but given the scale of low pay a more ambitious approach is surely merited.
The most direct approach is to raise the NMW to the level of the Living Wage. A gradual closing of the gap between the NMW and the Living Wage seems sensible as it would help employers to adjust and allow any adverse impacts on unemployment to be observed and addressed early on. NMW legislation is a reserved matter, but Northern Ireland could lobby for an uplift or seek to have the power devolved- just like with Corporation Tax. The idea of regional minimum wages is not unusual – US states for example can set their own minimum wage, above that of the federal government. Indeed the previous Stormont administration 1921-1972 had responsibility for Minimum Wage levels. There is an important discussion to be had as to whether there should exemptions for special cases, such as start-ups or sectors which export and so compete largely on price.
As an enormously influential purchaser of goods and services, the Northern Ireland government could lead the way. There is a debate as to the scope to include Living Wage clauses under EU procurement law. Greater London Council requires its contractors to pay their staff a Living Wage – to date without legal challenge. Others have adopted a more cautious approach. The Scottish Assembly, haven taken advice from the European Commission, urges its contractors to voluntarily pay their staff a Living Wage. Similarly, our local Department of Culture, Arts and Leisure recently persuaded some of its contractors to pay its staff the Living Wage. Whether it is through soft pressure or contracts, the Northern Ireland public sector should consider whether it has more scope to promote the Living Wage.
The Living Wage is undoubtedly desirable. This research contributes to a growing evidence base that it is also economically doable. NICVA is calling on the Northern Ireland Executive to set out its plan to reduce the proportion of employees paid below the Living Wage. To borrow a phrase, let’s make work pay.
This article was orignially pubilshed on the Slugger O'Toole website on 15 September 2014.